Lecture Notes on the New Audit Report Lord Gen A.

Rilloraza, CPA

The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance
with the applicable financial reporting framework.

FORMS OF OPINION
1. Unmodified Opinion
2. Qualified Opinion
3. Adverse Opinion
4. Disclaimer of Opinion

The auditor shall express an (1)unmodified opinion when the auditor concludes that the financial statements are prepared,
in all material respects, in accordance with the applicable financial reporting framework.

If the financial statements are not free from material misstatements, or if the auditor is unable to obtain sufficient
appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatements, the
auditor shall modify the opinion.

Modifications to the Opinion

Modifications to the opinion arise when there is material misstatement in the financial statements, or there are scope
limitations in the audit engagement that made the auditor unable to obtain sufficient appropriate audit evidence to express
an opinion.

If the misstatements, individually or in aggregate, are material, but not pervasive, to the financial statements, the auditor
shall express a (2)qualified opinion; otherwise, if the misstatements are material and pervasive to the financial statements,
the auditor shall express an (3)adverse opinion.

If the auditor is unable to obtain sufficient appropriate audit evidence and he concludes that the possible effects of the
undetected misstatements on the financial statements are material, but not pervasive, the auditor shall express a qualified
opinion; otherwise, if the possible effects of the undetected misstatements on the financial statements are material and
pervasive, the auditor shall (4)disclaim an opinion.

AUDITORS REPORT
The auditors report shall be in writing. A written report encompasses reports issued in hard copy and those using an
electronic medium.

Title
The auditors report shall have a title that clearly indicates that it is the report of an independent auditor (e.g. Independent
Auditors Report)

Addressee
The auditors report shall be addressed, as appropriate, based on the circumstances of the engagement. Law, regulation, or
the terms of the engagement may specify to whom the auditors report is to be addressed in that particular jurisdiction. The
auditors report is normally addressed to those for whom the report is prepared, often either to the shareholders or to those
charged with governance of the entity whose financial statements are being audited.

Auditors Opinion
The first section of the auditors report shall include the auditors opinion, and shall have the heading Opinion. If the
auditor is expressing a modified opinion, the title shall be Qualified Opinion, Adverse Opinion, or Disclaimer of Opinion,
whichever is appropriate for the opinion being expressed.

The Opinion section shall (a) identify the entity whose financial statements have been audited; (b) state that the financial
statements have been audited; (c) identify the title of each statement comprising the financial statements; (d) refer to the
notes, including the summary of significant accounting policies; and (e) specify the date of, or period covered by, each
financial statement comprising the financial statements.

If the auditor is expressing a qualified opinion due to a material misstatement, the auditor shall state except for the effects
of the matter(s) described in the Basis for Qualified Opinion section, the financial statements are presented fairly []. If
the auditor is expressing a qualified opinion because of an inability to obtain sufficient appropriate audit evidence, the
auditor shall state except for the possible effects of the matter(s) described in the Basis for Qualified Opinion section, [].

If the auditor is expressing an adverse opinion, the auditor shall state, because of the significance of the matter(s) described
in the Basis for Adverse Opinion, the financial statements do not present fairly [].

If the auditor is expressing a disclaimer of opinion, the auditor shall state that he does not express an opinion on the
financial statements. The auditor shall also state that because of the significance of the matter(s) described in the Basis for
Disclaimer of Opinion section, the auditor has not been able to obtain sufficient appropriate audit evidence to provide a
basis for an audit opinion on the financial statements.

Examples:
(1) Unmodified Opinion
OPINION

We have audited the financial statements of ABC Company (the Company), which comprise the statement of financial position
as at December 31, 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash
flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

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Lecture Notes on the New Audit Report Lord Gen A. Rilloraza, CPA

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the
Company as at December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance
with Philippine Financial Reporting Standards (PFRSs).

(2) Qualified Opinion due to material misstatements

QUALIFIED OPINION

We have audited the financial statements of ABC Company (the Company), which comprise the statement of financial position
as at December 31, 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash
flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion section of our report, the
accompanying financial statements present fairly, in all material respects, the financial position of the Company as at
December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance with Philippine
Financial Reporting Standards (PFRSs).

(3) Qualified Opinion due to inability to obtain sufficient appropriate audit evidence
QUALIFIED OPINION

We have audited the financial statements of ABC Company (the Company), which comprise the statement of financial position
as at December 31, 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash
flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion section of our report,
the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at
December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance with Philippine
Financial Reporting Standards (PFRSs).

(4) Adverse Opinion

ADVERSE OPINION

We have audited the financial statements of ABC Company (the Company), which comprise the statement of financial position
as at December 31, 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash
flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion section of our report, the
accompanying financial statements do not present fairly, in all material respects, the financial position of the Company as at
December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance with Philippine
Financial Reporting Standards (PFRSs).

(5) Disclaimer of Opinion

DISCLAIMER OF OPINION

We have audited the financial statements of ABC Company (the Company), which comprise the statement of financial position
as at December 31, 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash
flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

We do not express an opinion on the accompanying financial statements of the Company. Because of the significance of the
matter described in the Basis for Disclaimer of Opinion section of our report, we have not been able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on the financial statements.

Basis for Opinion

The auditors report shall include a section, directly following the Opinion section, with the heading Basis for Opinion. If
the auditor is expressing a modified opinion, the title shall be Basis for Qualified Opinion, Basis for Adverse Opinion, or
Basis for Disclaimer of Opinion, whichever is appropriate for the expressed opinion.

The Basis for Opinion shall:

(a) State that the audit was conducted in accordance with Philippine Standards on Auditing
(b) Refer to the section of the auditors report that describes the auditors responsibilities under the PSAs
(c) Include a statement that the auditor is independent of the entity in accordance with the relevant ethical
requirements relating to the audit, and has fulfilled the auditors other ethical responsibilities in accordance with
these requirements.
(d) State whether the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to
provide a basis for the auditors opinion.

If there is a material misstatement of the financial statements that relates to specific amounts in the financial statements,
the auditor shall include a description and quantification of the effects. If it is not practicable to quantify the financial
effects, the auditor shall so state in this section.

If there is a material misstatement that relates to narrative disclosures, the auditor shall include an explanation of how the
disclosures are misstated.

If there is a material misstatement that relates to the non-disclosure of information required to be disclosed, the auditor
shall discuss the non-disclosure with those charged with governance, describe in the Basis for Opinion the nature of the
omitted information, and, unless prohibited by law or regulation, include the omitted disclosure, provided it is practicable
to do so and the auditor has obtained sufficient appropriate audit evidence about the omitted information.

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Lecture Notes on the New Audit Report Lord Gen A. Rilloraza, CPA

If the modification results from inability to obtain sufficient appropriate audit evidence, the auditor shall include the reasons
for that inability.

When the auditor disclaims an opinion, the auditors report shall not include the elements required by paragraphs (b) and
(d) stated in this section.

Going Concern
Where applicable, the auditor shall report in accordance with PSA 570 (Revised). *refer to discussion on Going Concern*

Key Audit Matters

When the auditor audits a complete set of general purpose financial statements of listed entities, or when the auditor is
otherwise required by law or regulation or decides to communicate key audit matters in the auditors report, the auditor
shall communicate key audit matters in the auditors report.

Key audit matters refer to those matters that, in the auditors professional judgment, were of most significance in the audit
of the financial statements of the current period. Key audit matters are selected from matters communicated with those
charged with governance.

In determining the key audit matters, the auditor shall take into account:
(a) Areas of higher assessed risk of material misstatements, or significant risks identified in accordance with PSA 315
(Revised).
PSA 315 (Revised) defines a significant risk as an identified and assessed risk of material misstatement
that, in the auditors judgment, requires special audit consideration.
However, not all significant risks are communicated under the key audit matters. For example, PSA 240
presumes that there are risks of fraud in revenue recognition and requires the auditor to treat those
assessed risks of material misstatement due to fraud as significant risks.
(b) Significant auditor judgments relating to areas in the financial statements that involved significant management
judgment, including accounting estimates that have been identified as having high estimation uncertainty.
(c) The effect on the audit of significant events or transactions that occurred during the period.
For example, the auditor may have had extensive discussions with management and those charged with
governance at various stages throughout the audit about the effect on the financial statements of significant
transactions with related parties or significant transactions outside the normal course of business.

The auditor shall describe each key audit matter, using an appropriate subheading, in a separate section of the auditors
report under the heading Key Audit Matters. The introductory language in this section of the auditors report shall state
that the key audit matters are those matters that, in the auditors professional judgment, were of most significance in the
audit of the financial statements; and that these matters were addressed in the context of the audit of the financial
statements as a whole, and in forming the auditors opinion thereon, and the auditor does not provide a separate opinion
on these matters.

The description of each key audit matter in the Key Audit Matters section of the auditors report shall include a reference to
the related disclosure(s), if any, in the financial statements, and shall address why the matter was considered to be one of
the most significance in the audit and therefore determined to be a key audit matter; and how the matter was addressed in
the audit.

Responsibilities for the Financial Statements

The auditors report shall include a section with a heading Responsibilities of Management for the Financial Statements.
The auditors report shall use the term that is appropriate in the context of the legal framework in the particular jurisdiction
and need not refer specifically to management.

This section shall describe managements responsibility for:

(a) Preparing the financial statements in accordance with the applicable financial reporting framework, and for such
internal control as management determines is necessary to enable the preparation of financial statements that are
free from material misstatements, whether due to fraud or error; and
(b) Assessing the entitys ability to continue as a going concern and whether the use of the going concern basis of
accounting is appropriate as well as disclosing, if applicable, matters relating to going concern. The explanation of
managements responsibility for this assessment shall include a description of when the use of the going concern
basis of accounting is appropriate.

Auditors Responsibilities for the Audit of the Financial Statements

The auditors report shall include a section with the heading Auditors Responsibilities for the Audit of Financial
Statements.

This section shall:

(a) State that the objectives of the auditor are to:
a. Obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatements, whether due to fraud or error; and
b. Issue an auditors report that includes the auditors opinion.
(b) State that the reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with PSAs will always detect a material misstatement when it exists; and
(c) State that misstatements can arise from fraud or error, and either:
a. Describe that they are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements, or
b. Provide a definition or description of materiality in accordance with the applicable financial reporting
framework.

The Auditors Responsibilities for the Audit of the Financial Statements section of the auditors report shall further:
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Lecture Notes on the New Audit Report Lord Gen A. Rilloraza, CPA

(a) State that, as part of an audit in accordance with PSAs, the auditor exercises professional judgment and maintains
professional skepticism throughout the audit; and
(b) Describe an audit by stating that the auditors responsibilities are:
a. To identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error; to design and perform audit procedures responsive to those risks; and to obtain audit evidence
that is sufficient and appropriate to provide a basis for the auditors opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
b. To obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entitys internal control. In circumstances when the auditor also has a responsibility to
express an opinion on the effectiveness of internal control in conjunction with the audit of the financial
statements, the auditor shall omit the phrase that the auditors consideration of internal control is not for
the purpose of expressing an opinion on the effectiveness of the entitys internal control.
c. To evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
d. To conclude on the appropriateness of managements use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the entitys ability to continue as a going concern. If the auditor
concludes that a material uncertainty exists, the auditor is required to draw attention in the auditors report
to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify the
opinion. The auditors conclusions are based on the audit evidence obtained up to the date of the auditors
report. However, future events or conditions may cause an entity to cease to continue as a going concern.
e. When the financial statements are prepared in accordance with a fair presentation framework, to evaluate
the overall presentation, structure and content of the financial statements, including the disclosures, and
whether the financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.

The description of the auditors responsibilities for the audit of the financial statements required shall be included:
(a) Within the body of the auditors report;
(b) Within an appendix to the auditors report, in which case the auditors report shall include a reference to the location
of the appendix; or
(c) By a specific reference within the auditors report to the location of such a description on a website of an appropriate
authority, where law, regulation or national auditing standards expressly permit the auditor to do so.

Other Reporting Responsibilities

If the auditor addresses other reporting responsibilities in the auditors report on the financial statements that are in
addition to the auditors responsibilities under the PSAs, these other reporting responsibilities shall be addressed in a
separate section in the auditors report with a heading titled Report on Other Legal and Regulatory Requirements or
otherwise as appropriate to the content of the section, unless these other reporting responsibilities address the same topics
as those presented under the reporting responsibilities required by the PSAs in which case the other reporting
responsibilities may be presented in the same section as the related report elements required by the PSAs.

Name of Engagement Partner

The name of the engagement partner shall be included in the auditors report for audits of complete sets of general purpose
financial statements of listed entities unless, in rare circumstances, such disclosure is reasonably expected to lead to a
significant personal security threat. In the rare circumstances that the auditor intends not to include the name of the
engagement partner in the auditors report, the auditor shall discuss this intention with those charged with governance to
inform the auditors assessment of the likelihood and severity of a significant personal security threat.

Signature of the Auditor

The auditors report shall be signed.

Auditors Address
The auditors report shall name the location in the jurisdiction where the auditor practices.

Date of the Auditors Report

The auditors report shall be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit
evidence on which to base the auditors opinion on the financial statements, including evidence that:
(a) All the statements that comprise the financial statements, including the related notes, have been prepared; and
(b) Those with the recognized authority have asserted that they have taken responsibility for those financial statements.